The Price of Global Climate Change Regulations

We can assume that most government regulations are instituted for benevolent reasons: to right a wrong, fix a problem or just generally improve conditions.

But the sad fact is that many regulations have unintended, often-negative consequences. Could this apply to the set of regulations created around the world to address “global climate change”?

The Cost of Global Climate Change Regulations

There is little doubt that the institution of regulations to avert a potential disaster is being done (largely) for benevolent reasons. And if these regulations enable mankind to avoid toasting the planet, melting down the polar ice caps and inviting the oceans to overflow into our backyards, that is a major benefit. But the regulations are also causing changes that will undoubtedly affect the cars we can buy and how much they will cost in the future. 

Typically, there is nothing wrong and a lot of things right about giving consumers more choice. In a market-based economy, competition is good, and it results in consumer benefits like better products and lower prices. But today’s worldwide geopolitical realities have prompted some to question the wide variety of choices auto manufacturers are being forced to make now -- and very likely, the wide variety of choices consumers will have to make in the next decade.

What the relatively new and ever-more-stringent global climate change regulations have put in play in the auto industry is the entire concept of the “conventional power train.”

Is Change Really What We Need?

After Charles F. Kettering’s invention of the electric self-starter in 1912, the auto industry rapidly adopted the spark-ignition gasoline-fueled engine as the engine of choice for passenger cars. Over the course of the next 80 years, four-stroke gasoline engines were the predominant engine for consumer vehicles.

Yes, diesels made some inroads in Europe where tax policies of the various European governments favored diesels over gasoline engines, but in the grand scheme of things, gasoline engines became the de facto standard. Development of automotive power plants largely centered on that type of engine, supplemented by diesel engines here and there. Auto manufacturers and backyard inventors experimented with other forms of propulsion -- steam, gas turbines, battery electrics, gasoline-electric hybrids, etc. -- but gasoline engines reigned supreme.

Now, however, the specter of global warming and the rules and regs it has spawned have influenced (some would say required) automakers to develop alternative power plants. In the short run, this has brought -- and will continue to bring -- consumers much more choice in power train. We have already seen an influx of gasoline-electric hybrids, and we are on the verge of seeing the introduction of plug-in hybrids (notably a Toyota Prius plug-in), electrically driven vehicles like the imminent Chevrolet Volt and full-battery electrics like the Nissan LEAF. Specialty makers like Tesla Motors and Fisker have already fielded their first entrants, and more vehicles in each of these categories will undoubtedly come to market. 

We will also see diesel-electric hybrids and potentially even fuel cell-powered vehicles available for consumer purchase before the decade ends. So consumer choice regarding vehicle power train will increase markedly. 

Debatable Consumer Benefit

If the new technologies really do help us avoid cooking planet Earth, one might conclude they are worth whatever costs they engender. But whether there is a genuine climate change problem and whether switching from gasoline engines to hybrids can solve it are debatable points.

What we cannot debate is the fact that government regulations, both here and abroad, are driving these changes in power train technology. The hybrids, electrically driven vehicles and pure electrics are not answers to consumer-asked questions. Instead, they are driven largely by government regulations, and this puts the industry in a very difficult position.

What the regulators might not understand is that developing all these technologies comes at a great price. In fact, a very high-ranking executive in charge of global engineering for a giant automaker has referred to the costs of the simultaneous development of so many different technologies as “unsustainable.”

Rather than concentrating on one or two key power train types, the world’s car companies are now forced to investigate and develop many because they don’t know which ones the public will favor -- and perhaps more important in the current political climate worldwide, they don’t know which ones the next set of regulations will favor. 

It is a squeeze that will undoubtedly result in higher vehicle prices, fewer new-vehicle sales and potentially less overall economic growth. Despite the brave talk of a new, vibrant green economy, these regulations are a drag on the consumer and a drag on the economy, and all the rhetoric in the world will not change that fact.

4 Ugly Cars Only Their Mothers Could Love

It’s Mother's Day week, and so we at Driving Today feel it might be apropos to celebrate the love a mother has for her child by remembering the cars that only a mother could love.

Certainly the world has seen its share of ugly babies. I could tell you of a child I saw just last week … well, let’s just move on. Undoubtedly, despite the way that child looked, we are sure it’s mother loved it just the same. And so it is with ugly cars.

For reasons known only to God and the executive committees that approved them, ugly cars exist in nature. And in spite of their often ungainly and grotesque countenances, somebody loves them. So let’s celebrate that unconditional love by taking a closer look at the pantheon of cars only their mother could love.

Ugly Car No. 1: AMC Pacer
Sure, this is the go-to ugly car, but it is the go-to because it was so ugly. Looking something like an upside-down cereal bowl balancing on toothpicks, the Pacer’s body was way too big for its undersized tires. To that, you can add positively enormous side glass, windshield and backlight, allowing you a very good look at the idiot who bought it. ­Inside, the over-long six-cylinder engine intrudes into the passenger compartment because when AMC designed it, they thought it would be equipped with a more compact, rotary engine.

Ugly Car No. 2: Renault Fuego
Some of the most beautiful classics of the ’30s came from French design studios, but by the early 1980s (and some would say well before), the French had lost their touch. The Fuego was a weak attempt at a sports coupe, kind of a limp-wristed Mustang saddled with a tiny engine and a lackluster profile. And as with so many ugly cars, the closer you look at it, the worse it gets. Details like the undersized tires and black body stripe did nothing but add to the overall malaise. Inside, the Fuego was an ergonomic disaster. 

Ugly Car No. 3: Yugo GV
Malcolm Bricklin’s attempt to use geopolitical realities to bring a price leader to the U.S. market failed largely because the car -- Yugo GV (for great value) -- was one of the worst vehicles ever foisted on the American public. In this car, as your mother once told you, ugly is as ugly does. The 1.1-liter engine that claimed to offer 58 horsepower was feeble, and the drivetrain had so much slop in it that if you accelerated, the car pulled to the left, and if you let off the accelerator, the car pulled to the right. Fit-and-finish inside and out were in the “you’ve got to be kidding” category.

Ugly Car No. 4: Pontiac Aztek
When you see a Pontiac Aztek on the road -- something that is still possible though unfortunate -- you have to wonder how a group of sighted auto executives approved the vehicle’s design. Some cars have hidden flaws, but the Aztek hides nothing. It is flawed everywhere: awkward profile, ungainly front and rear ends, plus loose, flapping-in-the-breeze trim. From the driver’s seat, the Aztek wasn’t nearly as bad as from the outside, but that’s like getting comfortable in the belly of a whale. The mundane 3.4-liter V-6 offered just 185 horsepower, not sufficient to get the Aztek out of our sight nearly quick enough.

To Lease a Car or Buy a Car?

When it comes to advice from personal finance experts, car leases usually get a bad rap. Financial gurus like Dave Ramsey tack a very dim view of leasing, suggesting it is just another way of racking up consumer debt.

But are the dangers of making the decision to lease versus buy your car overblown?

Industry expert Mark Ragsdale thinks so. According to his reasoning, getting a car lease can be a financially sound and smart way for consumers to get the wheels they want.  

“Unfortunately, there is not much that consumers can control in the new and used car markets,” says Ragsdale, former car dealer and author of Car Wreck: How You Got Rear-Ended, Run Over, & Crushed by the U.S. Auto Industry. “While they are driving their cars and making payments, automakers are heavily discounting and flooding the market with the exact same models. These decisions do more than just knock a few pennies off the value of their customers’ car already on the road. Some of these moves can destroy up to 60 percent of the value of a car in its very first year of life.”

And the poor car buyer doesn’t simply have to contend with the automakers’ marketing decisions that lessen their car value. Toyota's recent trouble reminds us that safety issues, heavily covered by the media can also have a significant impact. Following Toyota’s recalls, which began in November 2009, the value of its cars fell by as much as $2,000. So if you were a consumer driving a 2008 Toyota Camry, one of the models affected by the recall, you also lost equity in your car. At the dealership, the quick and dirty solution to lost equity is rolling the deficit into the next auto loan, but that is hardly a recipe for financial success.

“Rolling unpaid auto loan obligations into newer loans is what got the industry into so much trouble,” says Ragsdale. “The vehicles are simply not worth what consumers owe on them at trade-in time. So both the payments and the length of finance terms increase in order to compensate for old debt obligations added into the new purchase contracts.”

If you own one of these vehicles as this unpredictable depreciation occurs, you also own all the financial losses that come right along with it, says Ragsdale. He points out than in this era of long-term finance controls, very few consumers ever truly own their cars these days: The banks do. Ragsdale suggests the consumer is better off letting the banks own the depreciation too.

He points out that the average term of car finance has grown to 64 months, while the average term of customer “ownership” is just 39 months. That's where a car lease can be a benefit rather than a curse. With a short-term lease contract, consumers don’t have to worry about what their cars will be worth in the future. At the end of the lease, the consumer simply drops off the keys and walks away debt-free -- but also car-free.

In general, a car lease offers about the same payment as a purchase contract for half the term. For example, a 72-month payment of $300 per month for a car purchase is roughly the same as for a 36-month lease, saving half the number of payments paid out of pocket. If you elect the longer-term traditional financing instead of the shorter-term lease, you will invest another $10,800 in that vehicle before you ever see the title. That’s before you add in all the extra maintenance expenses and repair liability, which can increase dramatically during the fourth, fifth, and sixth years of ownership.

According to Ragsdale, consumers are underwriting all this resale risk with no chance of ever recovering their extra investment.

Electing a longer-term finance strategy with plans of trading out of the problem halfway through the contract is not a viable alternative either. Thirty-six months into the purchase agreement, most consumers still owe more principal and bank interest on their loan than the car is worth. So the only way to make a deal is by rolling the remaining unpaid balance into the new loan at trade-in time. This dynamic could put customers further upside down each successive time they trade. On the other hand, at the 36-month point, the leasing customer will have no negative equity…or positive equity, for that matter.

“So on one hand, we have 15 percent of consumers staying even by leasing their cars,” Ragsdale said. “On the other, we have 85 percent of consumers putting themselves further and further into debt so they can ‘own’ their cars. This is a needless waste of money and a needless strain on auto lenders. Should life’s circumstances change -- as they inevitably do -- consumers always ‘own’ the right to completely wipe out their personal auto debt every three years -- a critical point the personal finance gurus fail to consider.”

Green Cars and Toyota

Two years ago, when Toyota sponsored its first seminar on sustainable mobility, much of the talk whirled around the imminent threat of human-caused climate change. 

This time around, that message was far less clear and far less stridently presented. In fact, the room seemed to contain more than a few skeptics about the potential tragic aspects of climate change, not to mention the key driver of that change.

The realization that the climate is always changing, and often for reasons we just don’t understand, is gaining currency even in a group that is predisposed to feel than humans are the chief culprit in an imminent catastrophe. The American public as a whole appears to be even more willing to take a ho-hum attitude about global climate change.

With this as the background, Toyota was more ready than ever to concede that its efforts in the hybrid, plug-in hybrid and fuel cell arenas are driven as much by U.S. government regulatory policy as by the possible implosion of the world’s ecosystem. 

“Where the market used to be 100 percent consumer pull, now a percentage is regulatory push,” said Bill Reinert, Toyota’s national manager of the advanced technologies group. “We have to bring consumers along with us or we will fail.”

While environmentalists will continue to seek vehicles they deem “green” (even if they are painted blue), persuading the run-of-the-mill car buyer to buy an eco-friendly car is a significantly harder task. Why? It’s not that Americans just don’t give a rip about the environment; repeated studies actually show Americans at least talk a good game about protecting the environment. But when it comes to spending “extra” money to buy a car that will limit carbon dioxide production and thus (maybe) help in the battle against global climate change, that’s where the waters are largely uncharted. Yes, the Toyota Prius has been a relative hit in the marketplace, but it is the exception among hybrid offerings. And as Toyota readies a plug-in version of the Prius for sale in 2012, company officials frankly admit they don’t know what demand will be.

“We are taking a cautious approach to the market launch in 2012,” said Toyota’s JC Chitwood. “There are a lot of unanswered questions, so the keyword about our demonstration program is education.”

Though Toyota is confident in its plug-in Prius product, it is not nearly as confident that the plug-in version of its popular hybrid can achieve significant incremental sales. Price is a big issue. Toyota execs wouldn’t say what the Prius plug-ins will cost, but there is little doubt that you’ll have to spend thousands of dollars more than the current Prius for one. That could well limit its appeal. And though there is a looming possibility that a percentage of current Prius owners will switch to the plug-in version because it will be pictured as “greener,” it is less likely that legions of others will join them. Toyota might wind up having invested a great deal of money only to sell about the same number of hybrids, in aggregate, as before.

Because of this potential, Toyota has done just about everything it can think of to mitigate the price of the plug-in. One example is in the battery pack: The upcoming Prius plug-in is expected to have a three-part lithium ion battery pack that will offer a limited (under 20-mile) range in electric-only mode, a decision largely determined because of the price of battery power. (The longer the range, the more expensive the battery, thus the more expensive the vehicle.)

It will be fascinating to see if this is the right decision. To confirm it, Toyota will be conducting a 150-vehicle demonstration drive program over the next year or so. Course corrections might result, but Toyota definitely wants to have a plug-in on the market in 2012.

Wagons Ho

We don’t have to tell you that the station wagon gets no respect in North America. Long regarded as a Mommobile -- and an outmoded version at that -- the station wagon is about as cool as teaming a corduroy sport coat with a paisley ascot.

But now, just like that so-bad-it’s-good fashion statement, the station wagon might be getting new life. Witness the New York International Auto Show, which featured several intriguing, and dare we say it, stylish wagon offerings. 

One of the most stylish comes from that bastion of automotive style known as MINI. The new model is called the Countryman, and it takes the familiar MINI look and adds oddities like rear doors and ample passenger space for four or even five adults. What’s spectacular about it is the Countryman doesn’t look like a MINI that has gained weight and started to lose its mojo. Instead, it is arguably the coolest-looking MINI of the lot. Adding significantly to the cool factor is a center rail system that facilitates the easy attachment of cup holders, storage boxes and personal electronics. 

In true station wagon fashion, the Countryman’s rear seats slide fore and aft and fold flat, expanding the 12.2 cubic foot cargo area to a remarkable 41 cubic feet. A normally aspirated 1.6-liter four cylinder engine is offered, but we suggest the turbocharged version with about 180-horsepower offered in the Countryman S. And to add to the utility, there is the optional all-wheel drive system, ALL-4, which can send up to 100 percent of engine power to the rear wheels. Ski weekend, anyone?

Also on the menu of super-trick new wagons offered in New York is the Cadillac CTS-V Sportwagon. Did we say “super-trick” and “Cadillac” in the same sentence? Yes, we did, and advisedly so. When it is time to take some gear to your boat or head up to the mountain cabin, why not do it in a wagon that features a 6.2-liter supercharged V-8 developing 556 horsepower and 551 lb-ft of torque? While a manual transmission is available, we’d opt for the Hydra-Matic 6L90 six-speed automatic with steering-wheel-mounted shift controls. Inside this well-styled sportster is the hand-stitched leather-and-suede interior that is the meringue on the pie.

Cadillac a little too expensive for you? Then consider the new 2011 Acura TSX Sport Wagon, which also made its world debut in New York. This fine-looking piece shares a great deal with the European market Honda Accord Touring model, which means there’s a lot to like about its handling. Initially the sole power train will be a 2.4-liter four-cylinder producing around 200-horsepower, paired with a five-speed automatic transmission and sending its power to the front wheels. Hey, how about an all-wheel-drive version, Acura? We do applaud the standard leather seats, dual-zone climate control and panoramic sunroof, though.

We also applaud the Mercedes-Benz E350 Wagon, which to our eyes is significantly cooler than the E-Class sedan. What’s cool about it? For starters, it features a standard retro rear-facing third-row seat just like that Ford Country Squire you might remember from Granny’s. (Remember, so-bad-it’s-good.) The cool vibe is furthered by the 268-horsepower V-6, a seven-speed automatic transmission and 4MATIC all-wheel drive system. To us, this is the perfect weekend escape car, no matter what the weather.

So, go figure: The New York Auto Show has shown quite clearly that the station wagon has swung around to cool. Now I’m going to bust out my madras blazer and the canvas Top-Siders.